House of Commons - Regulatory Reform

Select Committee on Regulatory Reform Second Report

Proposal F: Compensation for tenant

Tenants who are refused a new tenancy on any of the three grounds not involving fault on their part - uneconomic subletting, the landlord's intention to demolish or reconstruct and the landlord's intention to occupy the premises[83] - are entitled to compensation on quitting.[84] The amount of compensation is based on the rateable value of the property and the length of time the tenant has been in occupation. A higher rate is payable if the premises have been occupied by the tenant for 14 years or more.

Problem

The different rates of compensation, depending on the length of occupation, produce an obvious difficulty where part of the premises has been occupied for less than 14 years and part for a longer period. It has been held that in such a case the tenant is entitled to the higher rate of compensation for the whole of the property if he has occupied some part of the property for at least 14 years.[85] To require (in accordance with the current law) compensation to be paid wholly at the higher rate, even in respect of that part of property which has been occupied for less than 14 years, seems unfair to the landlord, since the tenant would receive greater compensation for the part occupied for a shorter period than he would have done if that part had been let separately. On the other hand, payment at the lower rate for the whole of the property, even that part occupied for over 14 years, would be unfair to the tenant in respect of the part he has occupied for 14 years or more.

Proposals

In accordance with the Law Commission's recommendation, the Department proposes that, where part of the property has been occupied for at least 14 years and part for less, the compensation payable in respect of each part should be separately calculated at the appropriate rate.[86] Further, in a case where the tenant has more than one landlord, each owning a different part of the property, compensation in respect of each part will only be recoverable from the landlord of that part.[87]

Removal or reduction of a burden

This aspect of the proposal reduces a burden on landlords in that they will be required to pay the higher rate of compensation only in respect of that part of the premises which has been occupied for at least 14 years.[88] It also reduces a burden in that, where ownership is split, a landlord will only be liable to pay compensation in respect of that part of the premises which he owns.

Necessary protection

The reduction of the burden on landlords of liability to pay compensation will not remove any necessary protection from tenants. They will still be entitled to compensation at the higher rate to the extent that they have occupied a property, or parts of a property, for at least 14 years; and compensation at the lower rate when they have done so for less than that time.

COMPENSATION FOR MISREPRESENTATION

Present Law

The Act contains another, separate, provision for compensation. If the court refuses an order for a new tenancy and it later appears that the decision was induced by a misrepresentation or concealment of material facts, the court may order the landlord to pay the tenant compensation for any resulting damage or loss.[89]

Problem

However, this provision does not apply where no application is made to the court. So, no compensation is payable to a tenant who made no application to the court for a new tenancy because the landlord stated that he would oppose the tenancy on a ground, say, that he intended to re-develop the property, and he misrepresented the facts on which he was relying.

Proposals

The Department, in accordance with the Law Commission's recommendation, propose that the provision of compensation for non-renewal of a tenancy as a result of misrepresentation should be extended to apply where the tenant is induced not to apply to the court or to withdraw his application for renewal.[90]

Removal or reduction of a burden

At present a tenant cannot receive compensation where he is induced by the landlord's misrepresentation not to apply to the court for a new tenancy. Tenants are therefore put to the unnecessary trouble and expense of making applications for new tenancies, which they know will almost certainly to be refused, in order simply to enforce their rights to compensation. Moreover, the compensation rights may be lost through failure to make an application because tenants may not realise that this is necessary. This burden on tenants of having to start proceedings unnecessarily to protect their right to compensation would be removed.

Imposition of a new burden

A new burden is imposed on landlords in that the right to compensation for misrepresentation is extended to cases where the tenant is induced not apply to court, or to withdraw his or her application to renew.[91]

Re-enactment of existing burdens

The proposed order would re-enact the burden on the landlord of liability for compensation in the case where the court refuses an order for a new tenancy and it later appears that the decision was induced by a misrepresentation or concealment of material facts.[92]

Proportionality

Both the new and the existing burdens of liability to pay compensation in cases of misrepresentation are clearly proportionate to the benefit of discouraging any such misrepresentation, or of compensating tenants who have been subject to it.

Necessary protection

This aspect of the proposal would not remove any necessary protection. The landlord will be required to pay such sum as appears to the court to be sufficient as compensation for the loss sustained by the tenant.

83 S 30(1)(e), (f) and (g). See fn 4 above. Back

84 S 37. Back

85 Edicron Ltd v William Whiteley Ltd [1984] 1 WLR 59. In this case, the tenant vacated a three-storey building in circumstances in which it was entitled to compensation under s 37. It had been the tenant of one floor for over 14 years, and of the other two floors for five and a half years. The Court of Appeal held that the occupation of some part of the property for at least 14 years entitled the tenant to compensation at the higher rate in respect of the whole property. The court pointed out that a single rate for any one claim was the only possible construction of s 37. Back

86 Proposed order, article 19(3) (new section 37(3A)). The new sections 37(1) to (1C) largely re-enact the existing s 37(1) , giving a right to compensation where the landlord opposes a renewal of the current tenancy only on grounds not involving the tenant's fault (i.e. the grounds specified in s 30(1)(e), (f) and (g)). But consequential upon other proposals the right to compensation is extended to include opposition on the extended grounds mentioned in article 14(1) and applications to end a current tenancy without renewal (article 5 (new s 29(2))). Back

87 Proposed order, article 19(3) (new section 37(3B)). Back

88 Proposed order, article 19(3) and (4). Back

89 S 55 Back

90 Proposed order, article 20 (new s 37A). This new section reproduces the substance of s 55 (which is to be repealed), and gives effect to the proposal that compensation should also be available in cases where the tenant is induced not to apply to the court or to withdraw his application. Back

91 Proposed order, article 20. Back

92 New s37A(1). Back